News & Press

JUNE 2017

Affordable Housing News

Affordable Elegance

by Affordable Housing News

Blending state-of-the-art building techniques and pioneering designs with a clear vision for how the firm can best serve its residents, Highridge Costa Companies continues to maintain its 25-year leadership in affordable housing.

Formed in 1994 as a division of KB Homes, Highridge Costa Companies went through a series of divestments and acquisitions before reaching its current ownership and organizational structure. Today, President and CEO Michael Costa and his team continue their quest to provide high-quality housing for working-class Americans from a variety of backgrounds.

“I was invited by Bruce Karatz, then Chairman and CEO of KB Home, to start a multifamily division for the very large public single-family homebuilder,” Costa says. “It was a tremendous opportunity as KB Home had resources to assist the development of affordable housing that did not exist in the market at that time, giving us a competitive advantage.”

Costa began to purchase the company in 2007 with the help of new financial partners. As he was helming the organization through the 2008 financial crises, he had to find a second financial partner, Highridge Partners, LLC to help Costa complete the restructuring of the company’s debt and equity in 2011.

This is when Highridge Costa Companies was officially born, partnering Costa with professionals whose expertise was largely in office development.

“They were very interested in affordable housing which made for a great marriage of experienced real estate professionals,” Costa says. “It allowed the then 16-year-old company to return to the market with its full capability of development, financing, construction, tax credit syndication and asset management allowing the company to pick up where it left off in late 2007. “

A PASSION FOR AFFORDABLE HOUSING

Over the past twenty-five years, the firm has syndicated and sold its own tax credits (over $2.5 billion). The firm has especially benefitted from its strong relationship and stellar track record working with large financial institutions having consistently delivered returns at or above projections. One such firm was effusive in its praise for Costa’s team; “Highridge Costa has been a great partner for us,” says Robin Delmer, Co-CEO and Managing Partner of Monarch Private Capital. “We continue to seek out new opportunities to provide vital housing for working families and are grateful to Michael for his confidence in Monarch Private Capital.” The tax credits continue to make affordable housing opportunities more feasible, although the process isn’t always easy.

“It is much more challenging to develop affordable housing than it is to develop market rate housing. I really love the challenge to create financing, often consisting of multi-layers to meet the cost of the developments,” Costa says.

The developer’s enthusiasm for building affordable housing grew out of his post-college work with Santa Monica-based Calmark, which focused on a program to develop affordable independent senior apartment communities throughout Southern California in the early 1980’s.

“It was a program to develop affordability through design and creative tax-exempt financing,” Costa says. “We didn’t have tax credits back then.”

With limited government incentives and assistance to create affordable housing prior to the 1986 Tax Reform Act’s introduction of Low-Income Housing Tax Credits, this early work with Calmark opened Costa’s eyes to the challenges and rewards of affordable housing development.

“We really had to create affordable housing primarily by way of design,” he says. “We built smaller one-bedroom and two-bedroom units, with reduced parking to reflect the actual automobile ownership, which helped us to increase density and reduce per unit land costs for each community.”

During his decade of service at Calmark, Costa was involved in the development of roughly 10,000 units of affordable senior housing throughout California.

The experience would set the stage for his later success in this challenging market.

STYLISH, SUSTAINABLE AFFORDABILITY

One way Highridge Costa Companies seeks to buck the historical trends of affordable housing is by using high-quality materials and attractive designs for all its developments. The firm’s properties then blend in seamlessly with their surrounding neighborhoods, including more expensive market rate developments often located across the street or next door.

In many instances, affordability and sustainability go hand in hand, Costa says, even when it comes to something as innocuous as landscaping.

“We’re adjusting our approach to landscaping from an environmental standpoint,” he says. “We’ve started to use less grass requiring continuous water, by replacing it with more drought resistant plant materials utilizing less water.”

The firm also incorporates photovoltaic panels in all new developments to help offset the costs of common-area utilities. “Often, we are generating more electricity than we are using, so we end up pushing some back into the grid---which creates additional revenue (for the property),” Costa says. “We’ve finally come to the age where a lot of the energy conservation products are now paying for themselves.”

A BRIGHT FUTURE

From 1994 through 2007, the Company built a portfolio of over 27,000 units spread over 33 states and Puerto Rico. Highridge Costa Companies are now focusing most of its efforts on opportunities located throughout the Western U.S. through a healthy mix of acquisitions and rehabs from its own portfolio, as well as new development.

In addition to two new developments now under construction in Texas, the Company is in predevelopment stages of a large-scale effort in Hawaii, blending independent senior living with affordable family housing. There’s also a 57-unit development for formerly homeless veterans in the works near the University of Southern California in Los Angeles, California.

Complementing its development activity, the firm has recently completed the acquisition and rehab of 19 properties located in California, Texas and Colorado, with 10 more set to be completed by the end of 2017. Common upgrades include energy-efficient appliances, which Costa says residents especially appreciate, new roofs, carpet, flooring, landscaping and energy upgrades.

When Costa was asked, what motivates you to continue to develop affordable housing that is so complicated and difficult to develop, his response was simple. On several occasions following a grand opening of an affordable community, I will have a single mom or a low- income senior on a fixed income approach me and deliver the most sincere thank you for our efforts. They often will say something like “but for your efforts I was living in a garage, or a shed attached to a garage, and now I have this beautiful place that I never dreamed I could ever have that I can call home.”

“When I am asked this question my answer is always the same, where in daily working life do you have the opportunity to receive such gratifying, genuine thanks for what you do every day? Thoughts about compensation go by the wayside, working for those genuine life-changing thank yous have become a driving force in my professional life, and makes me very proud of what we do.”